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EX-32.2 - EXHIBIT 32.2 - Jason Industries, Inc.ex-32209292017.htm
EX-32.1 - EXHIBIT 32.1 - Jason Industries, Inc.ex-32109292017.htm
EX-31.2 - EXHIBIT 31.2 - Jason Industries, Inc.ex-31209292017.htm
EX-31.1 - EXHIBIT 31.1 - Jason Industries, Inc.ex-31109292017.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 29, 2017
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from  __________ to __________ 

Commission File Number: 001-36051
jasonlogoa32.jpg
 JASON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
46-2888322
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
833 East Michigan Street
Suite 900
Milwaukee, Wisconsin
 
53202
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (414) 277-9300
 
Not Applicable
(Former name or former address, if changed since last report)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ý No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨
 
Accelerated filer ý
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller reporting company) 
 
Emerging growth company ý
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨  No ý

As of October 29, 2017, there were 25,966,381 shares of common stock of the Company issued and outstanding. 




JASON INDUSTRIES, INC.
TABLE OF CONTENTS



1




PART I – FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
Jason Industries, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2017
 
September 30, 2016
 
September 29, 2017
 
September 30, 2016
Net sales
$
155,430

 
$
170,108

 
$
503,100

 
$
546,769

Cost of goods sold
123,457

 
139,261

 
400,874

 
441,092

Gross profit
31,973

 
30,847

 
102,226

 
105,677

Selling and administrative expenses
26,170

 
25,941

 
78,068

 
86,515

(Gain) loss on disposals of property, plant and equipment - net
(639
)
 
68

 
(904
)
 
757

Restructuring
1,772

 
566

 
2,996

 
5,066

Operating income
4,670

 
4,272

 
22,066

 
13,339

Interest expense
(8,203
)
 
(7,906
)
 
(24,964
)
 
(23,893
)
Gain on extinguishment of debt
819

 

 
2,383

 

Equity income
295

 
146

 
715

 
457

Loss on divestiture
(842
)
 

 
(8,730
)
 

Other income - net
58

 
247

 
261

 
648

Loss before income taxes
(3,203
)
 
(3,241
)
 
(8,269
)
 
(9,449
)
Tax benefit
(1,602
)
 
(694
)
 
(1,438
)
 
(1,360
)
Net loss
(1,601
)
 
(2,547
)
 
(6,831
)
 
(8,089
)
Less net (loss) gain attributable to noncontrolling interests

 
(415
)
 
5

 
(1,325
)
Net loss attributable to Jason Industries
(1,601
)
 
(2,132
)
 
(6,836
)
 
(6,764
)
Accretion of preferred stock dividends
955

 
900

 
2,809

 
2,700

Net loss available to common shareholders of Jason Industries
$
(2,556
)
 
$
(3,032
)
 
$
(9,645
)
 
$
(9,464
)
 
 
 
 
 
 
 
 
Net loss per share available to common shareholders of Jason Industries:
 
 
 
 
 
 
 
Basic and diluted
$
(0.10
)
 
$
(0.13
)
 
$
(0.37
)
 
$
(0.42
)
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
26,241

 
22,499

 
26,023

 
22,423

The accompanying notes are an integral part of these condensed consolidated financial statements.


2




Jason Industries, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands) (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2017
 
September 30, 2016
 
September 29, 2017
 
September 30, 2016
Net loss
$
(1,601
)
 
$
(2,547
)
 
$
(6,831
)
 
$
(8,089
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Employee retirement plan adjustments, net of tax
15

 

 
45

 

Foreign currency translation adjustments
2,257

 
303

 
9,283

 
1,354

Net change in unrealized gains (losses) on cash flow hedges, net of tax expense (benefit) of $198, $69, $174 and ($1,915), respectively
320

 
109

 
283

 
(3,024
)
Total other comprehensive income (loss)
2,592

 
412

 
9,611

 
(1,670
)
Comprehensive income (loss)
991

 
(2,135
)
 
2,780

 
(9,759
)
Less: Comprehensive (loss) income attributable to noncontrolling interests

 
(346
)
 
43

 
(1,608
)
Comprehensive income (loss) attributable to Jason Industries
$
991

 
$
(1,789
)
 
$
2,737

 
$
(8,151
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3





Jason Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
 
 
 
September 29, 2017
 
December 31, 2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
51,391

 
$
40,861

Accounts receivable - net of allowances for doubtful accounts of $3,076 at September 29, 2017 and $3,392 at December 31, 2016
75,793

 
77,837

Inventories - net
70,495

 
73,601

Other current assets
16,259

 
17,866

Total current assets
213,938

 
210,165

Property, plant and equipment - net of accumulated depreciation of $84,036 at September 29, 2017 and $70,979 at December 31, 2016
154,501

 
177,823

Goodwill
44,739

 
42,157

Other intangible assets - net
134,484

 
144,258

Other assets - net
12,927

 
9,433

Total assets
$
560,589

 
$
583,836

 
 
 
 
Liabilities and Shareholders' Equity (Deficit)
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
7,310

 
$
8,179

Accounts payable
56,154

 
61,160

Accrued compensation and employee benefits
19,119

 
13,207

Accrued interest
98

 
191

Other current liabilities
24,059

 
24,807

Total current liabilities
106,740

 
107,544

Long-term debt
397,901

 
416,945

Deferred income taxes
34,122

 
42,608

Other long-term liabilities
21,330

 
19,881

Total liabilities
560,093

 
586,978

 
 
 
 
Commitments and contingencies (Note 15)

 

 
 
 
 
Shareholders' Equity (Deficit)
 
 
 
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 48,697 shares issued and outstanding at September 29, 2017, including 952 shares declared on September 15, 2017 and issued on October 1, 2017, and 45,899 shares issued and outstanding at December 31, 2016, including 899 shares declared on December 15, 2016 and issued on January 1, 2017)
48,697

 
45,899

Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized; issued and outstanding: 25,966,381 shares at September 29, 2017 and 24,802,196 shares at December 31, 2016)
3

 
2

Additional paid-in capital
144,547

 
144,666

Retained deficit
(170,068
)
 
(163,232
)
Accumulated other comprehensive loss
(22,683
)
 
(30,372
)
Shareholders’ equity (deficit) attributable to Jason Industries
496

 
(3,037
)
Noncontrolling interests

 
(105
)
Total shareholders' equity (deficit)
496

 
(3,142
)
Total liabilities and shareholders' equity (deficit)
$
560,589

 
$
583,836

The accompanying notes are an integral part of these condensed consolidated financial statements.

4




Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 
Nine Months Ended
 
September 29, 2017
 
September 30, 2016
Cash flows from operating activities
 
 
 
Net loss
$
(6,831
)
 
$
(8,089
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation of property, plant and equipment
19,874

 
23,502

Amortization of intangible assets
9,365

 
9,421

Amortization of deferred financing costs and debt discount
2,232

 
2,256

Equity income
(715
)
 
(457
)
Deferred income taxes
(8,540
)
 
(7,635
)
(Gain) loss on disposals of property, plant and equipment - net
(904
)
 
757

Gain on extinguishment of debt
(2,383
)
 

Loss on divestiture
8,730

 

Transaction fees on divestiture
(932
)
 

Dividends from joint venture

 
2,068

Share-based compensation
904

 
(864
)
Net increase (decrease) in cash, excluding effect of divestitures, due to changes in:
 
 
 
Accounts receivable
(332
)
 
(15,857
)
Inventories
3,958

 
1,487

Other current assets
655

 
6,366

Accounts payable
(5,275
)
 
7,850

Accrued compensation and employee benefits
7,647

 
(1,209
)
Accrued interest
(80
)
 
33

Accrued income taxes
2,061

 
2,030

Other - net
(4,954
)
 
1,213

Total adjustments
31,311

 
30,961

Net cash provided by operating activities
24,480

 
22,872

Cash flows from investing activities
 
 
 
Proceeds from disposals of property, plant and equipment
8,758

 
3,299

Payments for property, plant and equipment
(10,363
)
 
(16,111
)
Proceeds from divestitures, net of cash divested and debt assumed by buyer
7,883

 

Acquisitions of patents
(64
)
 
(134
)
Changes in restricted cash
(2,361
)
 

Net cash provided by (used in) investing activities
3,853

 
(12,946
)
Cash flows from financing activities
 
 
 
Payments of First and Second Lien term loans
(21,051
)
 
(2,325
)
Proceeds from other long-term debt
7,883

 
8,415

Payments of other long-term debt
(6,190
)
 
(9,635
)
Payments of preferred stock dividends
(9
)
 
(2,700
)
Other financing activities - net
(35
)
 
(151
)
Net cash used in financing activities
(19,402
)
 
(6,396
)
Effect of exchange rate changes on cash and cash equivalents
1,599

 
63

Net increase in cash and cash equivalents
10,530

 
3,593

Cash and cash equivalents, beginning of period
40,861

 
35,944

Cash and cash equivalents, end of period
$
51,391

 
$
39,537

Supplemental disclosure of cash flow information
 
 
 
Non-cash investing activities:
 
 
 
Property, plant and equipment acquired through additional liabilities
$
1,077

 
$
1,782

Non-cash financing activities:

 
 
Accretion of preferred stock dividends
$
3

 
$
900

Non-cash preferred stock created from dividends declared
$
2,798

 
$

Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
$
62

 
$

Buyer assumption of debt balance from divestiture
$
2,950

 
$

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(In thousands) (Unaudited)

 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Shareholders’
Equity (Deficit) Attributable to Jason
Industries, Inc.
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity (Deficit)
Balance at December 31, 2016
$
45,899

 
$
2

 
$
144,666

 
$
(163,232
)
 
$
(30,372
)
 
$
(3,037
)
 
$
(105
)
 
$
(3,142
)
Dividends declared
2,798

 

 
(2,809
)
 

 

 
(11
)
 

 
(11
)
Share-based compensation

 

 
904

 

 

 
904

 

 
904

Tax withholding related to vesting of restricted stock units

 

 
(35
)
 

 

 
(35
)
 

 
(35
)
Net loss

 

 

 
(6,836
)
 

 
(6,836
)
 
5

 
(6,831
)
Employee retirement plan adjustments, net of tax

 

 

 

 
45

 
45

 

 
45

Foreign currency translation adjustments

 

 

 

 
9,247

 
9,247

 
36

 
9,283

Net changes in unrealized gains on cash flow hedges, net of tax

 

 

 

 
281

 
281

 
2

 
283

Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.

 
1

 
1,821

 

 
(1,884
)
 
(62
)
 
62

 

Balance at September 29, 2017
$
48,697

 
$
3

 
$
144,547

 
$
(170,068
)
 
$
(22,683
)
 
$
496

 
$

 
$
496


 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Shareholders’ Equity
Attributable to Jason
Industries
 
Noncontrolling
Interests
 
Total
Shareholders’
Equity
Balance at December 31, 2015
$
45,000

 
$
2

 
$
143,533

 
$
(95,997
)
 
$
(21,456
)
 
$
71,082

 
$
13,912

 
$
84,994

Dividends declared

 

 
(2,700
)
 

 

 
(2,700
)
 

 
(2,700
)
Share-based compensation

 

 
(864
)
 

 

 
(864
)
 

 
(864
)
Tax withholding related to vesting of restricted stock units

 

 
(151
)
 

 

 
(151
)
 

 
(151
)
Net loss

 

 

 
(6,764
)
 

 
(6,764
)
 
(1,325
)
 
(8,089
)
Foreign currency translation adjustments

 

 

 

 
1,126

 
1,126

 
228

 
1,354

Net changes in unrealized losses on cash flow hedges, net of tax

 

 

 

 
(2,513
)
 
(2,513
)
 
(511
)
 
(3,024
)
Balance at September 30, 2016
$
45,000

 
$
2

 
$
139,818

 
$
(102,761
)
 
$
(22,843
)
 
$
59,216

 
$
12,304

 
$
71,520

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)




1.
Description of Business and Basis of Presentation
Description of Business
Jason Industries, Inc. (“Jason Industries”), including its subsidiaries (collectively, the “Company”), is a global industrial manufacturing company with four reportable segments: finishing, components, seating, and acoustics. The segments have operations within the United States and 13 foreign countries. The finishing segment focuses on the production of industrial brushes, buffing wheels, buffing compounds and abrasives that are used in a broad range of industrial and infrastructure applications. The components segment is a diversified manufacturer of expanded and perforated metal components, slip resistant surfaces and subassemblies for smart utility meters. The seating segment supplies seating solutions to equipment manufacturers in the motorcycle, lawn and turf care, industrial, agricultural, construction and power sports end markets. The acoustics segment manufactures engineered non-woven, fiber-based acoustical products for the automotive industry.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. For additional information, including the Company’s significant accounting policies, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The Company’s fiscal year ends on December 31. Throughout the year, the Company reports its results using a fiscal calendar whereby each three month quarterly reporting period is approximately thirteen weeks in length, ending on a Friday. The exceptions are the first quarter, which begins on January 1, and the fourth quarter, which ends on December 31. For 2017, the Company’s fiscal quarters are comprised of the three months ending March 31June 30September 29 and December 31. In 2016, the Company’s fiscal quarters were comprised of the three months ended April 1, July 1, September 30 and December 31.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).  This standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment.  Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value.  ASU 2017-04 is required to be applied on a prospective basis.  The Company adopted ASU 2017-04 effective January 1, 2017. The adoption of this standard did not impact the Company’s condensed consolidated financial statements, as no triggering events or indicators of potential impairment were identified during the nine months ended September 29, 2017 and the Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). This standard clarifies when to account for a change in the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of a change in terms or conditions. No other changes were made to the current guidance on stock compensation. ASU 2017-09 is required to be applied on a prospective basis. The Company adopted ASU 2017-09 effective April 1, 2017. The adoption of this standard did not impact the Company’s condensed consolidated financial statements for the three or nine months ended September 29, 2017.


7



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)




Accounting standards to be adopted in future fiscal periods
In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU becomes effective for the Company at the beginning of its 2018 fiscal year. The Company is finalizing the analysis of the impact of the guidance across all of our revenue streams. The assessment process includes reviewing the Company’s contract portfolio, comparing its historical accounting policies and practices to the requirements of the new guidance, and identifying potential differences from applying the requirements of the new guidance to its contracts. Based on the assessment completed thus far, we expect that for certain production parts in our finishing and seating segments that are highly customized with no alternative use and for which the Company has an enforceable right to payment with a reasonable margin under the terms of the contract, we will recognize revenue over time when parts are manufactured. However, we expect this change to be limited to specific customer agreements where the right to reasonable margin is in place throughout the entire course of the contract production cycle, including agreements which call for minimum levels of stock to be maintained on hand for the customer. Additionally, the assessment process has identified certain future product discounts for which evaluation is ongoing to determine if these discounts represent a material right under the new guidance. While the Company has made substantial progress in identifying the expected impacts of the new standard, it has not yet determined a range of the potential quantitative impact. The Company has determined based on recent clarifications that the new guidance will not impact the accounting for reimbursable tooling. The Company expects to adopt the new revenue standard using the modified retrospective adoption method.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for interim and annual periods beginning after December 15, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes new accounting and disclosure requirements for leases. This standard requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account for certain short-term leases (with a term of 12 months or less) using a method similar to the current operating lease model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability and amortization of the right-of use asset and for operating leases, a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. This standard must be applied using a modified retrospective approach, which requires recognition and measurement of leases at the beginning of the earliest period presented, with certain practical expedients available. The Company is in the process of analyzing the impact of the guidance on our inventory of lease contracts and currently intends to adopt the standard in the first quarter of fiscal 2019.  The Company expects this ASU to have a material impact on its consolidated financial statements upon recognition of the lease liability and right-of-use asset for lease contracts which are currently accounted for as operating leases.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 will require companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017 and requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 320): Restricted Cash" ("ASU 2016-18"), which clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. This new guidance will require a retrospective adoption approach. The Company expects the adoption of ASU 2016-18 will result in

8



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



changes to the presentation of the condensed consolidated statements of cash flows related to the Company’s recorded restricted cash balances.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 broadens the scope of financial and nonfinancial strategies eligible for hedge accounting and makes certain targeted improvements to simplify the application of hedge accounting guidance. In addition, the standard amends the presentation and disclosure requirements for hedges and is intended to more closely align the hedge accounting guidance with a company’s risk management strategies. The standard is effective for interim and annual reporting periods beginning after December 15, 2018; however, early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements, as well as the planned timing of adoption.
2.
Revision of Previously Reported Financial Information
During the third quarter of 2017, we identified an error in the loss on divestiture presented within the condensed consolidated financial statements for the period ended June 30, 2017 related to the calculation of the write down of the Company’s Acoustics European operations within the acoustics segment located in Sulzbach-Rosenberg, Germany (“Acoustics Europe”) recorded when the business was classified as held for sale. As a result of this error, the loss on divestiture was understated by $1.2 million.
Also during the third quarter of 2017, we identified an error in the cost of goods sold presented in the financial statements impacting all periods in 2016 through the second quarter of 2017. The error resulted in the understatement of recorded depreciation expense of $0.5 million in 2016, $0.1 million in the first quarter of 2017 and $0.1 million in the second quarter of 2017.
While the impact of these errors is not material to the previously reported financial statements, we have revised our previously issued condensed consolidated financial statements. Periods not presented herein will be revised, as applicable, in future filings.
The impacts of the required corrections to the condensed consolidated statements of operations and comprehensive income (loss) were as follows:
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2017
 
As Reported
 
Adjustments
 
As Revised
 
As Reported
 
Adjustments
 
As Revised
Cost of goods sold
$
136,758

 
$
75

 
$
136,833

 
$
277,187

 
$
230

 
$
277,417

Gross profit
35,719

 
(75
)
 
35,644

 
70,483

 
(230
)
 
70,253

Operating income
9,869

 
(75
)
 
9,794

 
17,626

 
(230
)
 
17,396

Loss on divestiture
(6,686
)
 
(1,202
)
 
(7,888
)
 
(6,686
)
 
(1,202
)
 
(7,888
)
Loss before income taxes
(3,281
)
 
(1,277
)
 
(4,558
)
 
(3,634
)
 
(1,432
)
 
(5,066
)
Tax provision (benefit)
200

 
(21
)
 
179

 
228

 
(64
)
 
164

Net loss
(3,481
)
 
(1,256
)
 
(4,737
)
 
(3,862
)
 
(1,368
)
 
(5,230
)
Net loss attributable to Jason Industries
(3,481
)
 
(1,256
)
 
(4,737
)
 
(3,867
)
 
(1,368
)
 
(5,235
)
Net loss available to common shareholders of Jason Industries
(4,417
)
 
(1,256
)
 
(5,673
)
 
(5,721
)
 
(1,368
)
 
(7,089
)
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share available to common shareholders of Jason Industries:
Basic and diluted
(0.17
)
 
(0.05
)
 
(0.22
)
 
(0.22
)
 
(0.05
)
 
(0.27
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
2,053

 
(1,256
)
 
797

 
3,157

 
(1,368
)
 
1,789

Comprehensive income (loss) attributable to Jason Industries
$
2,053

 
$
(1,256
)
 
$
797

 
$
3,114

 
$
(1,368
)
 
$
1,746



9



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2016
 
As Reported
 
Adjustments
 
As Revised
 
As Reported
 
Adjustments
 
As Revised
Cost of goods sold
$
139,129

 
$
132

 
$
139,261

 
$
440,743

 
$
349

 
$
441,092

Gross profit
30,979

 
(132
)
 
30,847

 
106,026

 
(349
)
 
105,677

Operating income
4,404

 
(132
)
 
4,272

 
13,688

 
(349
)
 
13,339

Loss before income taxes
(3,109
)
 
(132
)
 
(3,241
)
 
(9,100
)
 
(349
)
 
(9,449
)
Tax benefit
(657
)
 
(37
)
 
(694
)
 
(1,262
)
 
(98
)
 
(1,360
)
Net loss
(2,452
)
 
(95
)
 
(2,547
)
 
(7,838
)
 
(251
)
 
(8,089
)
Net loss attributable to Jason Industries
(2,037
)
 
(95
)
 
(2,132
)
 
(6,513
)
 
(251
)
 
(6,764
)
Net loss available to common shareholders of Jason Industries
(2,937
)
 
(95
)
 
(3,032
)
 
(9,213
)
 
(251
)
 
(9,464
)
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share available to common shareholders of Jason Industries:
Basic and diluted
(0.13
)
 

 
(0.13
)
 
(0.41
)
 
(0.01
)
 
(0.42
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
(2,040
)
 
(95
)
 
(2,135
)
 
(9,508
)
 
(251
)
 
(9,759
)
Comprehensive (loss) income attributable to Jason Industries
$
(1,694
)
 
$
(95
)
 
$
(1,789
)
 
$
(7,900
)
 
$
(251
)
 
$
(8,151
)
The impacts of the required corrections to the condensed consolidated balance sheets were as follows:
 
June 30, 2017
 
December 31, 2016
 
As Reported
 
Adjustments
 
As Revised
 
As Reported
 
Adjustments
 
As Revised
Assets held for sale
$
17,684

 
$
(1,202
)
 
$
16,482

 
$

 
$

 
$

Total current assets
239,894

 
(1,202
)
 
238,692

 
210,165

 

 
210,165

Accumulated depreciation
(79,364
)
 
(725
)
 
(80,089
)
 
(70,484
)
 
(495
)
 
(70,979
)
Property, plant and equipment - net
158,653

 
(725
)
 
157,928

 
178,318

 
(495
)
 
177,823

Total assets
589,554

 
(1,927
)
 
587,627

 
584,331

 
(495
)
 
583,836

Deferred income taxes
36,302

 
(203
)
 
36,099

 
42,747

 
(139
)
 
42,608

Total liabilities
588,553

 
(203
)
 
588,350

 
587,117

 
(139
)
 
586,978

Retained deficit
(166,743
)
 
(1,724
)
 
(168,467
)
 
(162,876
)
 
(356
)
 
(163,232
)
Shareholders' equity (deficit) attributable to Jason Industries
1,001

 
(1,724
)
 
(723
)
 
(2,681
)
 
(356
)
 
(3,037
)
Total shareholders' equity (deficit)
1,001

 
(1,724
)
 
(723
)
 
(2,786
)
 
(356
)
 
(3,142
)
Total liabilities and shareholders' equity (deficit)
589,554

 
(1,927
)
 
587,627

 
584,331

 
(495
)
 
583,836

The above revisions did not impact total net cash provided by (used in) operating, investing or financing activities within the condensed consolidated statements of cash flows for any previous period. Other than the adjustments to net loss for the six months ended June 30, 2017 and the nine months ended September 30, 2016, as described above, which impacted recorded retained deficit, shareholders' equity (deficit) attributable to Jason Industries and total shareholders' equity (deficit), there were no other impacts to the condensed consolidated statements of shareholders' equity (deficit). There was no impact to the Company's previously reported “segment” Adjusted EBITDA for the three or six months ended June 30, 2017 and the three or nine months ended September 30, 2016.

10



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



3.
Divestiture
On August 30, 2017, the Company completed the divestiture of Acoustics Europe for a net purchase price of $8.1 million, which includes cash of $0.2 million, long-term debt assumed by the buyer of $3.0 million and other purchase price adjustments. The divestiture resulted in a $8.7 million pre-tax loss, of which $7.9 million was recorded in the second quarter of 2017 when the business was classified as held for sale and written down to estimated fair value less costs to sell and $0.8 million was recorded in the third quarter of 2017 based on changes in the net assets of the business and additional foreign currency translation adjustments upon closing of the divestiture.
Acoustics Europe had net sales of $32.9 million for the year ended December 31, 2016 and $22.9 million for the eight months ended August 30, 2017, the date of closing. The divestiture reduced the Company’s non-core revenue within the European automotive market and has allowed it to focus on margin expansion and growth in the core North American automotive market. The Company determined that the divestiture did not represent a strategic shift that will have a major effect on the Company’s operations and financial results and as such, has continued to report the results of Acoustics Europe within continuing operations in the condensed consolidated statements of operations.
4.
Restructuring Costs
On March 1, 2016, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program (the “2016 program”). The 2016 program, as used herein, refers to costs related to various restructuring activities across business segments. This includes entering into severance and termination agreements with employees and footprint rationalization activities, including exit and relocation costs for the consolidation and closure of plant facilities and lease termination costs. These activities were ongoing throughout 2016 and the nine months ended September 29, 2017 and are expected to be completed by the end of 2018.

11



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



The following table presents the restructuring costs recognized by the Company under the 2016 program by reportable segment. The 2016 program began in the first quarter of 2016 and as such, the cumulative restructuring charges represent the cumulative charges incurred since the inception of the 2016 program through September 29, 2017. The other costs incurred under the 2016 program in the nine months ended September 29, 2017 primarily include charges related to the consolidation of two U.S. plants within the components segment, exit costs related to the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil and the consolidation of two U.S. plants within the finishing segment. Based on the announced restructuring actions to date, the Company expects to incur a total of approximately $12 million under the 2016 program. Restructuring costs are presented separately on the condensed consolidated statements of operations.
2016 Program
 
Finishing
 
Components
 
Seating
 
Acoustics
 
Corporate
 
Total
Restructuring charges - three months ended September 29, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Severance costs
 
$
384

 
$
58

 
$

 
$
3

 
$

 
$
445

Lease termination costs
 
(20
)
 

 

 
61

 

 
41

Other costs
 
563

 
715

 

 
8

 

 
1,286

Total
 
$
927

 
$
773

 
$

 
$
72

 
$

 
$
1,772

 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges - nine months ended September 29, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Severance costs
 
$
645

 
$
58

 
$
(17
)
 
$
31

 
$
(9
)
 
$
708

Lease termination costs
 
5

 

 

 
172

 

 
177

Other costs
 
785

 
1,189

 

 
137

 

 
2,111

Total
 
$
1,435

 
$
1,247

 
$
(17
)
 
$
340

 
$
(9
)
 
$
2,996

 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges - three months ended September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Severance costs
 
$
397

 
$
(223
)
 
$
50

 
$
96

 
$
43

 
$
363

Lease termination costs
 
27

 

 

 

 

 
27

Other costs
 

 
174

 

 
2

 

 
176

Total
 
$
424

 
$
(49
)
 
$
50

 
$
98

 
$
43

 
$
566

 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges - nine months ended September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Severance costs
 
$
3,064

 
$
334

 
$
72

 
$
952

 
$
189

 
$
4,611

Lease termination costs
 
144

 

 

 

 

 
144

Other costs
 
31

 
278

 

 
2

 

 
311

Total
 
$
3,239

 
$
612

 
$
72

 
$
954

 
$
189

 
$
5,066

 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative restructuring charges - period ended September 29, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Severance costs
 
$
3,932

 
$
436

 
$
59

 
$
1,008

 
$
588

 
$
6,023

Lease termination costs
 
349

 

 

 
172

 

 
521

Other costs
 
1,788

 
1,703

 

 
193

 

 
3,684

Total
 
$
6,069

 
$
2,139

 
$
59

 
$
1,373

 
$
588

 
$
10,228

 
 
 
 
 
 
 
 
 
 
 
 
 

12



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



The following table represents the restructuring liabilities, including both the 2016 program and previous activities:
 
Severance
costs
 
Lease
termination
costs
 
Other costs
 
Total
Balance - December 31, 2016
$
1,281

 
$
333

 
$
1,085

 
$
2,699

Current period restructuring charges
708

 
177

 
2,111

 
2,996

Cash payments
(1,180
)
 
(483
)
 
(2,381
)
 
(4,044
)
Foreign currency translation adjustments
40

 
10

 
18

 
68

Balance - September 29, 2017
$
849

 
$
37

 
$
833

 
$
1,719

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
costs
 
Lease
termination
costs
 
Other costs
 
Total
Balance - December 31, 2015
$
594

 
$
1,038

 
$

 
$
1,632

Current period restructuring charges
4,611

 
144

 
311

 
5,066

Cash payments
(2,933
)
 
(840
)
 
(311
)
 
(4,084
)
Foreign currency translations adjustments
13

 
(5
)
 

 
8

Balance - September 30, 2016
$
2,285

 
$
337

 
$

 
$
2,622

At September 29, 2017 and December 31, 2016, the restructuring liabilities were classified as other current liabilities on the condensed consolidated balance sheets. At September 29, 2017 and December 31, 2016, the accrual for lease termination costs primarily relates to restructuring costs associated with a 2016 lease termination in the finishing segment. At September 29, 2017 and December 31, 2016, the accrual for other costs primarily relates to a loss contingency for certain employment matter claims within the finishing segment due to the closure of a facility in São Bernardo do Campo, Brazil. See further discussion within Note 15, “Commitments and Contingencies”.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.
Inventories
Inventories consisted of the following:
 
September 29, 2017
 
December 31, 2016
Raw material
$
35,856

 
$
37,222

Work-in-process
4,946

 
4,175

Finished goods
29,693

 
32,204

Total inventories
$
70,495

 
$
73,601

6.
Sale Leaseback
In April 2017, the Company completed a sale leaseback of its Libertyville, Illinois facility consisting of land and production facilities utilized by its components segment. In connection with the sale, the Company received proceeds, net of fees and closing costs, of $5.6 million and recorded a deferred gain of $1.1 million which will be recognized over the term of the lease as a reduction of rent expense. The lease commences in April 2017 and expires in March 2032. The Company has classified the lease as an operating lease and will pay approximately $10.1 million in minimum lease payments over the life of the lease.
7.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill, all of which is within the Company’s finishing segment, were as follows:
 
 
Balance as of December 31, 2016
$
42,157

Foreign currency impact
2,582

Balance as of September 29, 2017
$
44,739

The Company’s other intangible assets - net consisted of the following:
 
 
 
September 29, 2017
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Patents
$
1,952

 
$
(597
)
 
$
1,355

 
$
1,880

 
$
(366
)
 
$
1,514

Customer relationships
109,951

 
(22,529
)
 
87,422

 
110,090

 
(16,630
)
 
93,460

Trademarks and other intangibles
57,211

 
(11,504
)
 
45,707

 
57,744

 
(8,460
)
 
49,284

Total other intangible assets - net
$
169,114

 
$
(34,630
)
 
$
134,484

 
$
169,714

 
$
(25,456
)
 
$
144,258

8.
Debt and Hedging Instruments
The Company’s debt consisted of the following:
 
September 29, 2017
 
December 31, 2016
First Lien Term Loans
$
298,793

 
$
303,025

Second Lien Term Loans
90,007

 
110,000

Debt discount on Term Loans
(3,832
)
 
(5,002
)
Deferred financing costs on Term Loans
(5,963
)
 
(7,503
)
Foreign debt
25,312

 
23,303

Capital lease obligations
894

 
1,301

Total debt
405,211

 
425,124

Less: Current portion
(7,310
)
 
(8,179
)
Total long-term debt
$
397,901

 
$
416,945

Senior Secured Credit Facilities
As of September 29, 2017, the Company’s U.S. credit facility (the “Senior Secured Credit Facilities”) included (i) term loans in an aggregate principal amount of $310.0 million (“First Lien Term Loans”) maturing in 2021, of which $298.8 million is outstanding, (ii) term loans in an aggregate principal amount of $110.0 million (“Second Lien Term Loans”) maturing in 2022, of which $90.0 million is outstanding, and (iii) a revolving loan of up to $40.0 million (“Revolving Credit Facility”) maturing in 2019.
The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to $0.8 million, with the balance payable at maturity. At the Company’s election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the “prime rate” of Deutsche Bank AG New York Branch, (b) the federal funds effective rate plus 0.50% or (c) the Eurocurrency rate applicable for an interest period of one month plus 1.00%, plus an applicable margin equal to (x) 3.50% in the case of the First Lien Term Loans, (y) 2.25% in the case of the Revolving Credit Facility or (z) 7.00% in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, plus an applicable margin equal to (x) 4.50% in the case of the First Lien Term Loans, (y) 3.25% in the case of the Revolving Credit Facility or (z) 8.00% in the case of the Second Lien Term Loans. Borrowings under the First Lien Term Facility and Second Lien Term Facility are subject to a floor of 1.00% in the case
of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s (an indirect wholly-owned subsidiary of the Company) consolidated first lien net leverage ratio.
Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations exceeds 25 percent, or $10.0 million, of the revolving credit commitments at the end of any fiscal quarter, Jason Incorporated and its restricted subsidiaries will be required to not exceed a consolidated first lien net leverage ratio, currently specified at 4.75 to 1.00, with a decrease to 4.50 to 1.00 on December 31, 2017 and remaining at that level thereafter. If such outstanding amounts do not exceed 25 percent of the revolving credit commitments at the end of any fiscal quarter, no financial covenants are applicable.
At September 29, 2017, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were 5.8% and 9.3%, respectively. At September 29, 2017, the Company had a total of $34.9 million of availability for additional borrowings under the Revolving Credit Facility since the Company had no outstanding borrowings and letters of credit outstanding of $5.1 million, which reduce availability under the facility.
Under the Senior Secured Credit Facilities, the Company is subject to mandatory prepayments if certain requirements are met. The mandatory prepayment is in excess of regular current installments due on First Lien Term Loans. At December 31, 2016, a mandatory prepayment of $1.9 million under the Senior Secured Credit Facilities was included within the current portion of long-term debt in the condensed consolidated balance sheets. The mandatory prepayment of $1.9 million was paid on April 10, 2017.
During the third quarter of 2017 the Company repurchased $12.0 million of Second Lien Term Loans for $10.7 million. In connection with the repurchase, the Company wrote off $0.2 million of previously unamortized debt discount and $0.3 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $0.8 million which has been recorded within the condensed consolidated statements of operations.
During the nine months ended September 29, 2017, the Company repurchased $20.0 million of Second Lien Term Loans for $16.8 million. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $2.4 million which has been recorded within the condensed consolidated statements of operations.
Foreign debt
The Company has the following foreign debt obligations, including various overdraft facilities and term loans:
 
September 29, 2017
 
December 31, 2016
Germany
$
21,225

 
$
21,469

Mexico
3,400

 
850

India
670

 
834

Other
17

 
150

Total foreign debt
$
25,312

 
$
23,303

These various foreign loans are comprised of individual outstanding obligations ranging from approximately $0.1 million to $13.7 million and $0.1 million to $12.6 million as of September 29, 2017 and December 31, 2016, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and/or maximum leverage ratio, among others. The Company was in compliance with these covenants as of September 29, 2017.
The foreign debt obligations in Germany primarily relate to term loans within our finishing segment of $20.6 million at September 29, 2017 and $19.3 million at December 31, 2016. The borrowings bear interest at fixed and variable rates ranging from 2.3% to 4.6% and are subject to repayment in varying amounts through 2030.
At September 29, 2017, the Company has recorded $2.4 million of cash received from the sale of Acoustics Europe and held in Germany as restricted cash within other assets-net on the condensed consolidated balance sheets due to certain restrictions within our foreign debt agreements.


13



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



Interest Rate Hedge Contracts
The Company is exposed to certain financial risks relating to fluctuations in interest rates. To manage exposure to such fluctuations, the Company entered into forward starting interest rate swap agreements (“Swaps”) in 2015 with notional values totaling $210.0 million at September 29, 2017 and December 31, 2016. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately 2.08% prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the nine months ended September 29, 2017, the Company recognized $1.5 million of interest expense related to the Swaps. There was no interest expense recognized in 2016. Based on current interest rates, the Company expects to recognize interest expense of $1.6 million related to the Swaps in the next 12 months.
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was $1.6 million at September 29, 2017 and $2.0 million at December 31, 2016, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
 
September 29, 2017
 
December 31, 2016
Interest rate swaps:
 
 
 
Recorded in other current liabilities
$
1,148

 
$
1,916

Recorded in other long-term liabilities
447

 
133

Total derivatives designated as hedging instruments
$
1,595

 
$
2,049

9.
Share-Based Compensation
In 2014, the Compensation Committee of the Company’s Board of Directors approved an initial grant under the 2014 Omnibus Incentive Plan (the “2014 Plan”) to certain executive officers, senior management employees, and members of the Board of Directors. The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including restricted stock units (“RSUs”) and performance share units, which are restricted stock units with vesting conditions contingent upon achieving certain performance goals. Share-based compensation expense is reported in selling and administrative expenses in the Company’s condensed consolidated statements of operations.
There were 3,473,435 shares of common stock reserved and authorized for issuance under the 2014 Plan. At September 29, 2017, there were 276,337 shares of common stock that remained authorized and available for future grants.
The Company recognized the following share-based compensation expense (income):
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2017
 
September 30, 2016
 
September 29, 2017
 
September 30, 2016
Restricted stock units
$
132

 
$
360

 
$
796

 
$
949

Adjusted EBITDA vesting awards
99

 
(15
)
 
99

 
(2,399
)
Stock price vesting awards

 
37

 
9

 
91

ROIC vesting awards

 
127

 

 
267

Subtotal
231

 
509

 
904

 
(1,092
)
Impact of accelerated vesting

 

 

 
228

Total share-based compensation expense (income)
$
231

 
$
509

 
$
904

 
$
(864
)
 
 
 
 
 
 
 
 
Total income tax benefit (provision) recognized
$
88

 
$
198

 
$
345

 
$
(322
)
As of September 29, 2017, total unrecognized compensation cost related to share-based compensation awards was approximately $2.2 million, which the Company expects to recognize over a weighted average period of approximately 2.4 years.

14



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



The following table sets forth the restricted and performance share unit activity:
 
 
 
 
 
Performance Share Units
 
Restricted Stock Units
 
Adjusted EBITDA Vesting Awards
 
Stock Price Vesting Awards
 
ROIC Vesting Awards
 
Units
(thousands)
 
Weighted-Average Grant-Date Fair Value
 
Units
(thousands)
 
Weighted-Average Grant-Date Fair Value
 
Units
(thousands)
 
Weighted-Average Grant-Date Fair Value
 
Units
(thousands)
 
Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2016
554

 
$
5.22

 
723

 
$
9.67

 
341

 
$
2.85

 
513

 
$
3.65

Granted
702

 
1.27

 
1,015

 
1.27

 

 

 

 

Adjustment for performance results achieved (1)(2)

 

 
(708
)
 
9.65

 
(189
)
 
2.30

 

 

Issued
(265
)
 
4.84

 

 

 

 

 

 

Deferred
159

 
3.69

 

 

 

 

 

 

Forfeited
(85
)
 
1.76

 
(90
)
 
2.81

 
(152
)
 
3.54

 
(91
)
 
3.46

Outstanding at September 29, 2017
1,065

 
$
2.76

 
940

 
$
1.27

 

 
$

 
422

 
$
3.69

(1)
Adjustment for Adjusted EBITDA awards was due to the number of shares vested at the end of the three-year performance period ended June 30, 2017 being lower than the maximum achievement of the targeted Adjusted EBITDA performance metric.
(2)
Adjustment for Stock Price Vesting Awards was due to the sales price of the Company’s common stock at the end of the three-year performance period ended June 30, 2017 being lower than the established stock price targets of the Stock Price Vesting Awards.
Restricted Stock Units
As of September 29, 2017, there was $1.1 million of unrecognized share-based compensation expense related to 776,732 RSU awards, with a weighted-average grant date fair value of $1.78, that are expected to vest over a weighted-average period of 2.4 years. Included within the 1,065,186 RSU awards outstanding as of September 29, 2017 are 288,454 RSU awards for members of our Board of Directors which have vested and issuance of the shares has been deferred, with a weighted-average grant date fair value of $5.41.
In connection with the vesting of RSUs previously granted by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements was withheld from the total shares issued or released to the award holder (under the terms of the 2014 Plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the nine months ended September 29, 2017 and September 30, 2016, there were 25,532 and 41,181 shares, respectively, withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying condensed consolidated statements of shareholders’ equity (deficit).
Performance Share Units
Adjusted EBITDA Vesting Awards - 2014 Grant
During the second quarter of 2016, the Company lowered its estimated vesting of Adjusted EBITDA based performance share unit awards with a three year measurement period ending June 30, 2017 from 62.5% of target, or 301,382 shares, to an estimated vesting of 0% of target, or 0 shares. As of September 29, 2017, there was no unrecognized compensation expense related to cumulative Adjusted EBITDA based vesting performance share unit awards expected to be recognized in subsequent periods, and the awards are no longer outstanding as the award period expired on June 30, 2017 with no awards vesting.




15



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)




Adjusted EBITDA Vesting Awards - 2017 Grant
In the third quarter of 2017, the Company granted performance share unit awards based on achievement of an Adjusted EBITDA performance target during a three year measurement period ending March 30, 2020. Performance share unit awards based on Adjusted EBITDA performance metrics are payable at the end of their respective performance period in common stock. The number of share units awarded can range from zero to 100% depending on achievement of a targeted performance metric, and are payable in common stock within a thirty day period following the end of the performance period. The Company expenses the cost of the performance-based share unit awards based on the fair value of the awards at the date of grant and the estimated achievement of the performance metric, ratably over the performance period of approximately three years.
Compensation expense of the Adjusted EBITDA based performance share unit awards is currently being recognized based on an estimated payout of 100% of target, or 940,005 shares. As of September 29, 2017, there was $1.1 million of unrecognized compensation expense related to cumulative Adjusted EBITDA based vesting performance share unit awards, which is expected to be recognized over a weighted average period of 2.5 years.
Stock Price Vesting Awards
As of September 29, 2017, there was no unrecognized compensation expense related to stock price based performance share unit awards expected to be recognized in subsequent periods, and the awards are no longer outstanding as the award period expired on June 30, 2017 with no awards vesting.
ROIC Vesting Awards
During the fourth quarter of 2016, the Company lowered its estimated vesting of ROIC (return on invested capital) based performance share unit awards with a three year measurement period ending on December 31, 2018 from 100% of target, or 281,057 shares, to an estimated payout of 0% of target or 0 shares. As of September 29, 2017, there was no unrecognized compensation expense related to ROIC based vesting performance share unit awards expected to be recognized in subsequent periods.
10.
Earnings per Share
Basic income (loss) per share is calculated by dividing net income (loss) attributable to Jason Industries’ common shareholders by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including public warrants, RSUs, performance share units, convertible preferred stock, and certain “Rollover Shares” of JPHI Holdings Inc. (“JPHI”), a majority owned subsidiary of the Company until the first quarter of 2017 (and now a wholly owned subsidiary), convertible into shares of Jason Industries. Such Rollover Shares were contributed by former owners and management of Jason Partners Holdings Inc. prior to the Company’s acquisition of JPHI. Public warrants (“warrants”) consist of warrants to purchase shares of Jason Industries common stock which are quoted on Nasdaq under the symbol “JASNW.”

16



Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)



The reconciliation of the numerator and denominator of the basic and diluted loss per share calculation and the anti-dilutive shares was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2017
 
September 30, 2016
 
September 29, 2017
 
September 30, 2016
Net loss per share attributable to Jason Industries common shareholders
 
 
 
 
 
 
 
Basic and diluted loss per share
$
(0.10
)
 
$
(0.13
)
 
$
(0.37
)
 
$
(0.42
)
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net loss available to common shareholders of Jason Industries
$
(2,556
)
 
$
(3,032
)
 
$
(9,645
)
 
$
(9,464
)
Denominator:
 
 
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
26,241

 
22,499

 
26,023

 
22,423

 
 
 
 
 
 
 
 
Weighted average number of anti-dilutive shares excluded from denominator:
 
 
 
 
 
 
 
Warrants to purchase Jason Industries common stock
13,994

 
13,994

 
13,994

 
13,994

Conversion of Series A 8% Perpetual Convertible Preferred (1)
3,889

 
3,653

 
3,815

 
3,653

Conversion of JPHI rollover shares convertible to Jason Industries common stock (2)

 
3,486

 
79

 
3,486